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I moved to the US in May 2012. I had made some investments in Indian stock markets. Since I did not make any significant profits in 2012 and 2013, I never paid taxes on that. In 2014, I have made some good profits by selling some of my stocks. Now my question is, how to pay taxes on these capital gains?

My tax preparing agent is suggesting that since the stock brokers in India does not have any US state ITINS, it becomes complicated to file that income along with US taxes. He says, I can file those taxes separately in India.

Some of my friends have said that, it is mandatory to pay tax in US for the capital gains in India. How complicated is it to include Indian capital gains along with US taxes? Did anybody face similar situation? Please suggest what is the best way to file these taxes. Also the financial years are different in India and US. I'm totally confused on how to file my taxes. Please help.

Also on a separate note, the demat account that I have in India is not an NRI account. Since I was not sure how long I would be in the US, I never converted my account to NRI account. Is it required to convert my account to NRI account?

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  • On a side note - drop your US tax adviser. He's advising you to break the US tax law, whether due to incompetency or malicious intent. You don't want such an adviser.
    – littleadv
    Mar 8, 2015 at 19:45

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My tax preparing agent is suggesting that since the stock brokers in India does not have any US state ITINS, it becomes complicated to file that income along with US taxes

Why? Nothing to do with each other. You need to have ITIN (or, SSN more likely, since you're on H1b). What brokers have have nothing to do with you.

You must report these gains on your US tax return, and beware of the PFIC rules when you do it.

He says, I can file those taxes separately in India.

You file Indian tax return in India, but it has nothing to do with the US. You'll have to deal with the tax treaty/foreign tax credits to co-ordinate.

How complicated is it to include Indian capital gains along with US taxes?

"How complicated" is really irrelevant. But in any case - there's no difference between Indian capital gains and American capital gains, unless PFIC/Trusts/Mutual funds are involved. Then it becomes complicated, but being complicated is not enough to not report it.

If PIFC/Trusts/Mutual funds aren't involved, you just report this on Schedule D as usual.

Did anybody face similar situation

More or less every American living abroad.

Also the financial years are different in India and US

Irrelevant.

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the demat account that I have in India is not an NRI account. Since I was not sure how long I would be in the US, I never converted my account to NRI account. Is it required to convert my account to NRI account?

Yes it is very much required by law. One should not buy or sell shares in the Resident account. One has to close and open a new account NRO Demat account and transfer the shares / units into it. Sell from this account. If you need to buy shares when one is NRI, an Demat PINS account is required to be opened.

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